The Importance of Medical Insurance in Financial Planning

When thinking about insurance, it seems easy to reflect solely on life insurance. In fact, when I first started working, I sought life insurance as my first protection product. While it is reasonable to purchase life insurance at young age, it may not be sensible to do so if you do not have a dime of medical coverage. Without medical coverage, you are risking the collapse of your entire financial plan. This is simply because medical insurance is the foundation of protection products.

Medical insurance precludes the need for a huge reservoir of emergency funds. The cost associated with the risk of not having medical coverage is limitless. If you get involved in a major accident, which doesn’t involve a third party, the costs could easily extend to hundreds of thousands of dollars. If you do not have adequate medical coverage, do you have at least one hundred thousand dollars in savings to cover this risk? That’s where medical insurance can assist you. For a few dollars per month, you can have $100,000.00 or more in medical coverage.

The savings that you would have devoted to a low-interest account where you have high liquidity, could then be invested in better savings accounts, income or capital appreciation funds. Apart from reducing or eliminating the need for you to accumulate vast savings to insure yourself against risk, medical insurance would actually help you to invest more and have more money available in times of such crises.

Lack of medical coverage can substantially cripple your other protection products. This is why not having it can seriously undermine your retirement plan and can even affect your life insurance policies. Take for example a person who has sufficient life insurance coverage and has been planning for retirement for a while. Suppose this person has $50,000.00 cash available and a further $60,000.00 available through liquidation of life insurance and retirement plans. If this person needs $80,000.00 for medical expenses, then the retirement plan would have to suffer or a life insurance plan surrendered. If the figure is higher, then the entire financial plan could be in further jeopardy.

Should you have medical coverage but no retirement plan, you’d be taking a risk as well but the effect of that would be felt much later and could be equally catastrophic at that time. Ideally, all aspects of a financial plan should be covered. In reality, a number of people cannot afford to be adequately covered in all areas, so a balance needs to be achieved.

Risk management is critical to successful and effective financial planning. The most significant risk is that of substantial medical expenses. Indeed, medical risks are faced by everyone. Therefore, everyone needs adequate medical coverage. This is quite unlike the need for life insurance. Purchasing medical insurance is not synonymous with inviting misfortune. It is a means of ensuring that your family and friends do not have to hold charity barbecues on your behalf in the future.